AGCO Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited consolidated results; amounts are in USD millions except per-share data and percentages. AGCO manufactures and sells agricultural equipment and related parts across four reportable regions.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $2,725.1 | $2,497.5 | $7,983.1 | $6,432.6 |
| Gross profit | $626.7 | $578.7 | $1,889.6 | $1,461.9 |
| Gross margin | 23.0% | 23.2% | 23.7% | 22.7% |
| Operating income | $251.9 | $224.0 | $737.4 | $421.7 |
| Net income attributable to AGCO | $181.3 | $157.3 | $614.9 | $291.7 |
| Diluted EPS | $2.40 | $2.09 | $8.11 | $3.86 |
| Operating cash flow | Not stated separately | Not stated separately | $41.5 | $224.1 |
| Capital expenditures | Not stated separately | Not stated separately | $198.7 | $183.1 |
Q3 sales increased 9.1% year over year and nine-month sales rose 24.1%. Nine-month gains reflected stronger demand, higher production and pricing, as well as comparison with 2020 COVID-related factory shutdowns. Management estimated average price increases of 6.3% for Q3 and 5.2% for the nine-month period. Nine-month tractor and combine unit sales increased 17.7%.
Q3 operating margin was 9.2%, compared with 9.0%; nine-month operating margin was 9.2%, compared with 6.6%. Nine-month earnings benefited from higher volumes, favorable mix and pricing, and the absence of a $20.0 million goodwill impairment recorded in 2020. The 2021 nine-month tax provision included a $67.8 million benefit from reversing a U.S. deferred-tax valuation allowance. These items are important context for assessing earnings growth.
Cash and restricted cash were $537.0 at September 30, versus $1,119.1 at December 31, 2020. Working capital was $1,258.7; current assets were $4,807.9 and current liabilities $3,549.2. Total debt, including short-term borrowings and current maturities, was approximately $1,621.7; debt-to-capitalization was 33.1%, versus 34.8% at year-end. Operating cash flow fell to $41.5 from $224.1, principally because inventory increased $868.5, partly offset by higher net income and accounts payable. Inventory totaled $2,738.3, up from $1,974.4 at year-end.
Dividends paid were $343.6 for the first nine months, or $4.53 per share, versus $36.0 and $0.48 per share in 2020. AGCO repurchased $75.0 of shares in Q3. The filing also reports a November 2021 $60.0 accelerated share repurchase, after the quarter.
Regions and material period changes
Nine-month sales increased in every region: Europe/Middle East to $4,424.8 from $3,644.2; North America to $1,984.5 from $1,689.9; South America to $902.1 from $606.3; and Asia/Pacific/Africa to $671.7 from $492.2. Europe/Middle East remained the largest region. Q3 North American operating income declined to $35.8 from $58.3, which management attributed to material-cost inflation and weaker mix; other regions reported higher Q3 operating income.
Quarter-end debt figures precede significant subsequent financing actions. On October 6, AGCO issued €600 million of 0.800% senior notes due 2028, using proceeds to repay debt including the 2022 term loan, $370 million of revolving borrowings and maturing term loans; further repayments were planned. The filing states that available facilities, October proceeds, cash and internally generated funds should meet foreseeable needs.
Outlook, commentary and risks
- Management expected 2021 global farm-equipment industry demand and AGCO net sales to exceed 2020, with higher gross and operating margins. It cited demand, pricing, favorable currency translation, and productivity, while noting material-cost inflation. No specific full-year sales or EPS target is provided in the supplied filing text.
- Supply constraints, including semiconductor and other component shortages, freight disruption and higher material costs, were disrupting production and shipments, creating labor inefficiencies and elevated raw-material and work-in-process inventory. Management said these issues had intensified and could continue to affect production, sales and margins.
- Farm demand was supported by favorable agricultural commodity prices and farm economics. Results remain sensitive to farm income, crop yields, weather, commodity prices, credit availability, foreign exchange, raw-material costs and industry cycles, as well as COVID-19 effects.
- Brazilian tax authorities are disputing deductions tied to goodwill amortization. The disputed tax amount was approximately 131.5 million Brazilian reais (about $24.2), excluding interest and penalties; management said it believes payment is not likely, but the appeal may take years.
- Residual-value guarantees to finance joint ventures had $24.3 accrued and a maximum potential future payment of $142.1. Other dealer/end-user financing guarantees totaled about $23.2; management characterized historical losses as insignificant.
- Other notable items: Headsight and Faromatics were acquired in August and September for approximately $16.8 and $5.5, respectively. The executive pension plan amendment produced a $23.2 after-tax gain in other comprehensive income. The company reported compliance with debt covenants and effective disclosure controls.
Key facts for investors to verify
- Whether supply-chain and freight constraints ease, and how inventory levels, production, shipments and margins develop.
- How much reported earnings growth reflects ongoing operations versus the $67.8 million tax valuation-allowance reversal and the prior-year goodwill impairment comparison.
- Cash conversion and working-capital requirements, especially the inventory build and the decline in operating cash flow.
- Post-quarter debt repayments and remaining liquidity, maturities, interest costs and covenant headroom after the 2028 notes issuance.
- The sustainability of pricing relative to material-cost inflation, and the unusually higher 2021 dividend and share-repurchase cash uses.
- Developments in the Brazilian tax dispute and the maximum exposure under residual-value guarantees.